Question

Skysong Corporation issued a 4-year, $40,000, zero-interest-bearing note to Garcia Company on January 1, 2020, and received cash of $40,000. In addition, Skysong agreed to sell merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market rate of interest for similar notes is 11%. Prepare Skysong Corporation's January 1 journal entry. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually) Date Account Titles and Explanation Debit Credit January 1, 2020

All the account spaces must be filled.

Answer 1

Answer

Face value of Note = $40,000

Maturity = 4 years

Market Interest rate = 11%

Present value of Note = $60,000 * PV factor @12% for 4th period = $40,000* 0.65873= $26349

Discount on Note Payable = $40,000 - $26349 = $13651

Journal Entry
Date	`	Debit	Credit
Jan-1-2020	Cash Dr	$40,000.00
	Discount on Note Payable Dr	$                 13,651
	To Note Payable		$          40,000
	To Unearned Sales Revenue		$          13,651
	(To record Note issued and Agreement to sell below selling price)
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